Why businesses need to lead the fight against climate change

Another round of climate talks ended in December as COP24 came to a close in Katowice, Poland. This was the first meeting with the aim of agreeing on rules to implement the 2015 Paris Agreement, and there was plenty of expectation that there would be a significant breakthrough. However, the nature of the negotiations led to a compromise on key issues, such as providing aid to countries suffering from the effects of climate change, and ultimately less progress than expected. The conference even overran by an entire day.

The talks seem to symbolise government action against climate change – insufficient for the problems at hand, negotiated into mediocrity, bogged down in politics and, above all, far too late. With recent developments in the UK such as the abolition of the Department for Energy and Climate Change, and cancellation of policies such as solar feed-in tariffs (prompting homeowners to rush to install panels before the scheme closes in March) and zero carbon homes, does the solution to climate change lie, not with governments, but with businesses?

Solving the supply of energy is the most important issue to tackle, given that it is the source of 35% of global greenhouse gas emissions

When looking at the possible impacts of business, it’s important to consider both supply and demand sides of the energy market, as well as the effects of other markets. Solving the supply of energy is the most important issue to tackle, given that it is the source of 35% of global greenhouse gas emissions, and has some of the most prominent businesses already at work. Investment in renewable energies such as solar photovoltaic cells and wind increased year-on-year to 2010, before staying flat ever since. This isn’t an issue but an indication of how the costs per unit for these energies have fallen exponentially, and how capacity and generation are continuing to increase. Between July and September, renewables accounted for 33.1% of all electricity generation, as legacy energy companies continue to make private investments, such as SSE’s £2.6bn Beatrice wind farm off the north east coast of Scotland.  The UK government did agree a contract with SSE to guarantee the price of the electricity generated in 2014, acting as a subsidy to the project, but according to Aurora Energy Research, both onshore wind and solar will be viable for businesses in the UK without subsidy by 2025, presenting an excellent investment opportunity.

The key concept underlying demand for energy is in improving energy efficiency, i.e. doing more with less energy. Over 60% of future investment here is expected by the IEA to be in transport, with the vast majority of that being in road vehicles. The typical example to mention here is Elon Musk’s Tesla, disrupting the car and battery markets and bringing about a rapid rise in electric vehicle sales in the US. While this may be true, Tesla continues to suffer from supply chain issues and a continued lack of economies of scale disrupting its Model 3 production, while the largest electric vehicle (EV) market can be found in China, where sales have more than doubled from 2017 to 2018 alone. In both countries, there are still significant government subsidies and consumer incentives to purchase EVs, although, as production expands in both countries, these are being scaled back. Businesses are set to lead the way in electric vehicles in the same way as energy companies, with rapid cost reductions offsetting falling subsidies and providing further incentives for research and development that will only lower costs more.

Businesses are able to commit to actions largely as a result of not being constrained by the same politics that continues to burden international climate negotiations

What can businesses not directly involved in the energy industry do? Prior to COP24, 50 CEOs of businesses from the World Economic Forum, including Allianz, PwC and Unilever, all co-signed a letter affirming their commitment to following the Paris Agreement within their firms, as well as calling on delegations to the conference to develop a low-carbon economy and shift finance away from high-carbon investments. There is plenty of promise elsewhere – fashion brands including Adidas and H&M have formed the ‘Fashion Industry Charter for Climate Action’, while over 2,400 companies worldwide have committed to some form of climate action through the UN’s NAZCA (Non-state Actor Zone for Climate Action) portal prior to COP24, with actions ranging from setting an internal carbon price to fossil fuel divestment. These businesses are able to commit to these actions largely as a result of not being constrained by the same politics that continues to burden international climate negotiations – firms do not need to be concerned with energy security or jobs in a country, so aren’t subject to energy industry influence in the same way a government might be. The cost of making these commitments is low, and while implementing them may be more expensive, all the business cares about is maximising profits – increased revenue from climate-aware customers is an obvious motivation here.

Above all, politics is about the different relationships of power and process – with governments, power rests with incumbent interests and industries, and the process is far too slow for the severity of climate change. Businesses are not as constrained – and should act accordingly.